Economist's Outlook

Strong buyer demand for residential homes continued to outpace supply in March. The Buyer Traffic Index rose to 69 while the Seller Traffic Index inched up to 41. This based on information in the March REALTORS® Confidence Index (RCI) Survey.

In many areas of the country REALTORS® reported low inventory levels of homes for sale. Tight inventory conditions have been cited as leading to higher prices and reduced time on market.

What Does This Mean for REALTORS®?
If a potential buyer asks why sales are down in some areas, one can note that a major reason for sales declines recently has been the hot sales market—a lack of inventory relative to the number of people who want to buy.

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses unemployment insurance.

• Fewer initial claims for unemployment insurance were filed in the week ending April 20, a positive indicator for the jobs market and the health of the economy. Initial claims for unemployment insurance declined to 339,000, down by 16,000 claims from the previous week’s upwardly revised level. As a caveat, the data is preliminary and is generally subject to upward minor revisions.
• In 2013, the level of initial claims has hovered at the mid 300 thousand which most analysts consider normal in an economy not experiencing a boom or bust.  Notwithstanding this positive trend, the economy still needs to generate more jobs to make inroads on reducing unemployment.
• What this Means for REALTORS®: Initial jobless claims have been on the downtrend, but a robust and sustained growth in jobs is needed to bring down the level of unemployment. If this trend and the housing market recovery continue, NAR projects 1.5 to 2.0 million non-farm net new jobs in 2013 even with the fiscal sequester.

• Many factors have increased the number of renter households qualified to purchase a home in 2012 versus 2000 and 2005: 1) incomes have increased, 2) population has grown, 3) mortgage rates are lower, and 4) prices have fallen since 2005.
• Additionally, while home prices rose from 2011 to 2012, lower mortgage rates have more than offset the gains, so the income needed to purchase the median priced home has actually gone down from 2011 to 2012 in spite of rising home prices.
• The tables below show the data underlying the change in required income. Qualifying income required to purchase a median priced home has fallen from $50,400 in 2005 and $40,300 in 2000 to $33,100 in 2011 and $31,700 in 2012 [1].

• Finally, based on all of these factors, we see that while 33 percent of renters qualified to buy the median priced home in 2000 and 24 percent of renters qualified to buy the median priced home in 2005, 47 percent of renters would qualify in 2011 and 40 percent would qualify in 2012 [2]. Translating these numbers into households, roughly 8 million renters qualified to purchase the median priced home in 2005 while in 2012, 20 million renter households qualify.
• These calculations assume that potential buyers meet credit qualifications and have sufficient cash on hand to close a transaction. Lending standards, credit quality, and access to funds will affect the number of households who will ultimately be able to buy a home.

[1] All values are nominal, not real values.

[2] This calculation assumes that income distribution in 2012 is the same as it was in 2011.

If you are an Administrative Professional, today is your day. Thank you.

• Eighteen percent of REALTOR® members have at least one personal assistant working for them. This is most common among managers and broker-owners to have a personal assistant. Among managers who do not sell, 27 percent have 1 personal assistant and 20 percent have more two or more assistants.
• Personal assistants most commonly process new listings and enter them into the MLS, send mailings to clients and prospects, and place and track advertising of listings, as well as schedule listing presentations, closing, and appointments.
• About half of personal assistants are licensed in real estate, and slightly less than half are full-time.  Members most frequently reported paying the assistant themselves, while about one-third are paid by the company. The most common compensation structure is hourly.
• For more information about this and other data from the Member Profile, go here >

Confidence about current market conditions and the outlook for the next six months rose strongly across all property types in March. For the first time, the “REALTORS® Confidence Index – Six Month Outlook” for townhouses breached the level of 50 which delineates “moderate” expectations. The data is based on information gathered in the March REALTORS® Confidence Index (RCI) Survey.

REALTORS® generally mentioned strong buyer demand, improving prices, and fewer days on the market amid tight inventory and restrictive credit conditions.

Examples of improving residential markets are delineated in detail in the RCI Report.

• Ninety-four percent reported that they expect constant or higher prices in the next 12 months.
• The median days on market for all sales was 62 days in March compared to 91 days a year ago.
• Thirty-seven percent of respondents reported time on market at less than 1 month when sold.
• Distressed sales were at 21 percent of market, down from 29 percent a year ago.

What Does This Mean for REALTORS®?
Some people are still a little shell shocked from the Great Recession, and some articles in the Press continue to question whether there is a recovery. The people who are experts in the housing markets—the REALTORS®–are reporting very favorable news. These experts see a recovery.

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s second update discusses the FHFA Home Price Index.

• FHFA data show that U.S. house prices rose 7.1 percent for the 12 months ending in February 2013, according to their repeat-sales house price index.
• NAR reports the median price of all existing homes that have sold in the given time period while FHFA’s weighted repeat-sales index only compares price changes among homes for which there is a previous sale, examining the difference in price for property-pairs only. Because home sales among higher priced properties have been growing more than among lower price tiers, the NAR median price has risen by more than the weighted repeat sales index, showing an 11.3 percent gain for the same 12-month period.
• While the NAR median price does not measure change in price for the same properties, it can be computed much more quickly than a weighted repeat sales index, thus information is available sooner, and as can be seen in the chart below, the trends in the data tend to be similar, so the NAR price index is a valuable early indicator of other housing price data.
• Additionally, similar trends are seen by region. NAR and FHFA data both show strongest price growth in the West and weakest price growth in the Northeast.
• NAR’s median home price for the 12th months ending March 2013 showed a gain of 11.8 percent, suggesting that further increases will be seen in the FHFA HPI next month.

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses new home sales.

• New home sales inched higher in March, now running at 18 percent above one year ago.  But the figures remain way down from peak levels.  A lack of new home construction has prevented new home sales from rising even higher.  Inventories of newly constructed homes for sale are essentially at 50-year lows. The lack of supply in relation has pushed up the new home prices in the first quarter to an all-time high, even above the levels seen during the bubble years.
• The newly constructed home market makes up only 8 percent of the overall home sales market, with the remaining 92 percent being existing home sales.
• The price gap between new and existing homes remain very wide compared to historical norms.  Even though existing home prices are recovering, the new home prices have to keep pace with construction and material costs.  The large gap also points to the relative attraction of existing homes and a plenty of room for further price improvements in the near future.
• Homebuilders clearly need to get busy.  Those large builders who can tap Wall Street funds or have a reserve of cash are able to purchase lots and start building.  However most homebuilding activity in America has traditionally been performed by local small-time builders working with local community banks.  Unfortunately, the small guys are shut out because of the difficulty of obtaining construction loans.  Onerous regulatory burdens are said to prevent local community banks from providing the construction loans. Meanwhile, the stock prices of those big builders have been racing to the top.

News for the U.S. economic outlook continues to be positive–housing recovery, continued productivity increases, new oil reserves. However, the economic news from around the world is frequently negative. Growth around the world has slowed. Many predictions are for relatively slow growth in a number of economies, although in the case of China its’ slower growth rate (projected in excess of 8 percent) would be considered outstanding in the U.S.

After the temporary loss of approximately $15 Trillion of assets during the Great Recession, a lot of people in the U.S. have become very nervous over any news of economic downturns. However, the consensus is that neither the U.S. nor the rest of the world is headed for a new recession. Although the worldwide economic recovery is mixed—with lots of opportunities for quasi-sensational headlines, most knowledgeable economists see a slow recovery—not a major recession.

What Does This Mean for REALTORS®? To the degree that clients express concern about the sometimes sensational focus on world economic problems and the potential impacts on the U.S., one could note that currently available information shows an economic outlook that continues to be positive. At this time, the economy continues to be on an upward trajectory. The recovery is weak worldwide—and in the Eurozone clearly disappointing. However, the expectations are that the recovery will expand.